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TMI Blog2021 (7) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... ls are available, then only the activity of extraction of minerals would start, that too, if it is viable to undertake those activities. Hence generation of revenue, as observed by the tax authorities, should not be the criteria for determining the date of setting up of business. The fact that the generation of revenue would take several years is well recognized in sec.35E of the Act, which provides for amortization of expenses incurred in previous four years preceding the year of commercial production. We notice from the financial statements that the assessee has employed personnel and has started exploration activities. The reconnaissance license has been obtained by one of the shareholders of the assessee company. Hence, there appears ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o restore the matter to the file of the AO for examining entire issue afresh in terms of sec.35E of the Act. Both the parties agreed to the same. - ITA No.92/Bang/2018 & ITA No.1837/Bang/2016 - - - Dated:- 2-7-2021 - SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER Appellant by : Shri Padamchand Khincha, A.R. Respondent by : Shri Kannan Narayanan, D.R. ORDER PER Bench:- The assessee has filed these appeals challenging the orders passed by Ld. CIT(A)-3, Bengaluru and they relate to the assessment year 2012-13 and 2013-14. Since the issue urged in these appeals is identical in nature, they were heard together and are being disposed of by this common order, for the sake of convenience. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed forward. Accordingly, he disallowed the business loss claimed in both the years and accordingly determined the total income as Nil in both the years under consideration. 4. The Ld. CIT(A) agreed with the view with the A.O. that the assessee has not acquired any mining rights and hence, it cannot be said that the company set up its business in these two years. The Ld. CIT(A) placed his reliance on the decision rendered by Bengaluru bench of Tribunal in the case of Kingfisher Training and Aviation Services Ltd. (2011) 8 ITR (Trib.) 692. Accordingly, the Ld. CIT(A) dismissed the appeals filed by the assessee for both the years under consideration. 5. The Ld. A.R. submitted that the assessee is in the business of exploration of mineral ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee could not commence its commercial production on account of certain litigations till date. Since the years under consideration falls beyond the period of four years mentioned in sec.35E of the Act, the Ld A.R contended that normal provisions of the Act should apply to the years under consideration. 7. The Ld. D.R. supported the order passed by Ld. CIT(A). The Ld. D.R. also placed his reliance on the decision rendered by Hon ble Bombay High Court in the case of ALD Automotive Pvt. Ltd., wherein it was held that when the assessee failed to produce necessary evidence in support of its claim that business was set up and it was ready to commence, expenditure incurred by the assessee prior to setting up of business could not be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue expenditure as deduction, it is enough that the business is set up. He submitted that the activity of exploration and extraction of minerals is a long process and hence the moment the assessee sets up the office and applies for license for undertaking exploration activities, the business should be treated as having been set up. 10. It is well settled proposition of law that setting up of business and commencement of production are two different activities. Once the business is set up, the assessee would be entitled for deduction of revenue expenses. In case of business relating to exploration and extraction of minerals, the activity of exploration of minerals itself is a long process. Once a person identifies the area, wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of sec.35E of the Act. 12. Admittedly, the A.O. has not examined the case of the assessee in terms of section 35E of the Act. However, the Ld A.R submitted that the assessee has not commenced extraction activities and accordingly contended that normal provisions of the Act should apply for the years preceding the four years period mentioned in sec.35E of the Act. As per the provisions of the Act, the business loss is allowed to be carried forward only for a period of eight years. For both the years under consideration, the prescribed period of eight years has already elapsed. Hence the claim of the assessee becomes academic. In any case, the question whether the provisions of sec.35E should apply for the years beyond the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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